Program for alternative funding of employee and retiree benefits

ABSTRACT

An insurance program for funding benefits by maintaining assets in the insurance program that includes an employer or employee owned trust account and at least one life insurance contract obtained directly or indirectly from a captive insurance company. The life insurance contract is purchased with assets from the trust account and the captive insurance company is a least partially owned by the employer. When paying or reimbursing benefits, the employer or the trust may pay the benefit and if the employer pays the benefit, the trust may reimburse the employer.

CROSS REFERENCE TO RELATED APPLICATION

This application is a Continuation of U.S. application Ser. No.10/995,325, filed on Nov. 24, 2004, now U.S. Pat. No. 8,060,384, theentirety of which, is incorporated herein by reference.

BACKGROUND OF THE INVENTION

1. Field of the Invention

The present invention relates generally to facilitating and/or providingbenefits to employees and retirees. More specifically, the presentinvention relates to a computer implemented system and method forconfiguring, optimizing, managing and tracking alternative funding ofemployee and retiree benefits and benefit plans.

2. Description of Related Art

Conventionally, employers have provided benefits to employees andretirees and have paid for these benefits using employer's funds. Morerecently, benefits, including medical costs, have become very expensiveand as a result, employers have scaled their benefit offerings and, insome cases, insisted that the employees pay a portion of the cost forthese benefits. Some corporations have also required that employees relyentirely on self funded retirement.

Additionally, commonly accepted accounting practices have essentiallyforced employers to reflect these benefits to employees and retirees asliabilities on corporate financial statements.

This trend has put a substantial strain on employers, on employees andtheir families, and on retirees and their families that were promisedbenefits after retirement. Employers appear to carry costly liabilitiesand employees are having to pay more for fewer services. Accordingly, asystem is needed to assist employers in controlling the cost of theirprograms and to ensure that employers are financially able to providethe maximum affordable benefits to employees and retirees and that theemployees and retirees get an appropriate level of benefits.

BRIEF SUMMARY OF THE INVENTION

In one embodiment, the present invention provides a method for fundingbenefits by maintaining assets in an investment program comprising, anemployer or employee owned trust account and at least one life insurancecontract obtained directly or indirectly from a captive insurancecompany. The life insurance contract is purchased with assets from thetrust account and the captive insurance company is a least partiallyowned by the employer. When paying or reimbursing benefits, the employeror the trust may pay the benefit and if the employer pays the benefit,the trust may reimburse the employer.

In another embodiment, the present invention allows the trust or thecaptive insurance company to invest its assets in commercially availablevehicles to generate additional assets, and in certain embodiments theinvestment may be in the employer's own securities including short termcommercial paper.

In yet another embodiment, the present invention provides a method offunding benefits where the captive insurance company is wholly orpartially owned by the employer, is a rent-a-captive, a protective cellcaptive, or any other form of a captive insurance company as defined andauthorized by the respective domicile of the captive insurance company.

In yet another embodiment, the present invention provides benefitsincluding, for example, health care benefits, retirement benefits,executive compensation, and/or life insurance. These benefits may beprovided to employees and/or retirees.

In yet another embodiment, the present invention utilizes a trustincluding, for example, a Voluntary Employee Beneficiary Association(VEBA) Trust or a Rabbi Trust as the beneficiary and to names at leastone employee receiving benefits from the employer as the insured personon the life insurance contract.

BRIEF DESCRIPTION OF THE DRAWINGS

Additional, features, and advantages of the various embodiments of thepresent invention will become apparent from the following detaileddescription of embodiments of the invention in conjunction with theaccompanying drawings where like reference numerals indicate likefeatures, in which:

FIG. 1 is a schematic drawing of a funding program for employee andretiree benefits in accordance with an embodiment of the presentinvention;

FIG. 2 is a flow chart illustrating the operation of a funding programin accordance with an embodiment of the present invention;

FIG. 3 is a flow chart illustrating how benefits may be paid when anemployee/retiree makes a claim in accordance with an embodiment of thepresent invention;

FIG. 4 is a flow chart illustrating how death benefits are paid inaccordance with an embodiment of the present invention;

FIG. 5 is a flow chart illustrating how benefits or claims on an insuredare paid in accordance with an embodiment of the present invention; and

FIG. 6 is a flow chart of a computer system for implementing a fundingprogram in accordance with an embodiment of the present invention.

DETAILED DESCRIPTION OF EMBODIMENTS

FIG. 1 is a schematic drawing of an alternative funding program foremployee and retiree benefits in accordance with an embodiment of thepresent invention. As illustrated in FIG. 1, the funding programincludes an employer 120 (or union or association in some embodiments),a captive insurance company 130, a Voluntary Employee BeneficiaryAssociation (VEBA) trust 140 and a third party insurance company 150.

FIG. 3 is a flow chart illustrating the operation of a funding programin accordance with an embodiment of the present invention. As bestillustrated in FIG. 3, but with reference to FIG. 1, the employer 120establishes a VEBA trust 140 in a first step 310. Next, in step 320, theemployer 120 funds the VEBA trust 140. With the funding 12, the VEBAtrust 140, as indicated by step 330, purchases Trust Owned LifeInsurance (TOLI) policies from a third party insurance company 150. Thethird party life insurance company 150 reinsures the policies with theemployer's captive insurance company 130. Accordingly, as illustrated bystep 340, the captive insurance company 130 reinsures and assumes someor all of the risk assumed by the third party insurance company 150.

As illustrated in the embodiment of FIG. 1, the employer 120 and thecaptive insurance company 130 have a subsidiary relationship 11.Specifically, in some embodiments, the captive insurance company 130 maybe a wholly owned subsidiary of the employer. Alternatively, in otherembodiments, the captive insurance company 130 may be a partially ownedsubsidiary of the employer 120. In fact, there are several arrangementsbetween the captive insurance company 130 and the employer 120 thatwould provide similar benefits as a subsidiary relationship 11. As wouldbe readily understood by a person of ordinary skill in the art, a groupcaptive insurance company (i.e., a captive insurance company that isshared between a group of employers 120) may provide similar advantageswhile reducing the cost attributed to each employer. These types ofcaptive insurance companies may be referred to as risk retention groupsor association captives. Alternatively, other forms of captive insurancecompanies 130 may include, for example, agency captives, branch captivesand rent-a-captives.

In general, however, the captive insurance company 130 is defined by thedomicile of the captive insurance company. For example, in embodiments,the captive insurance company may be domiciled in Vermont (generally a“captive friendly” state). According to Title 8, Section 6001 of theVermont Statute definition of a captive insurance company is any purecaptive insurance company, association captive insurance company,sponsored captive insurance company, industrial insured captiveinsurance company, or risk retention group formed or licensed under theprovisions of this chapter. For purposes of this chapter, a branchcaptive insurance company shall be a pure captive insurance company withrespect to operations in this state, unless otherwise permitted by thecommissioner. The section further defines, for example, a pure captiveinsurance company as any company that insures risks of its parent andaffiliated companies or controlled unaffiliated business. Thesedefinitions are exemplary of statutes that may exist in other states aswell. Of course, as would be generally understood by a person ofordinary skill in the art, many variations of the definition may existbased on for example, the domicile of the captive insurance company 130.In other embodiments, the term “captive” is used generally to describean insurance company that insures the risk of its owners who are not inthe business of insurance.

As would be understood by a person of ordinary skill in the art, each ofthese captive insurance company examples have their respective benefitsand should be selected to meet an employer's needs. Additionally, thepresent invention should not be limited to the specific types ofcaptives discussed above, any type or form of captive insurance companywould fall within the scope of the present invention.

In the embodiment illustrated in FIG. 1, the employer 120 and the VEBAtrust 140 exchange funds. The funding 12 can occur in numerous manners,for example, the funding 12 may be an initial funding, a periodicfunding and/or a non-periodic funding. The funding provides the VEBAtrust 140 with assets/money. Additionally, as shown in the embodiment ofFIG. 1, the VEBA trust 140 reimburses 15 the employer 120. Specifically,in the illustrated embodiment, the employees/retirees 110 may make aclaim to the employer which may be reimbursed by the VEBA trust 140.Examples of claims may include, for example, reimbursement for medicalexpenses, death benefit, etc.

FIG. 4 is a flow chart illustrating one procedure by which benefits maybe paid when an employee/retiree makes a claim in accordance with anembodiment of the present invention. Upon receipt of the claim, as shownby step 410, the employer 120 will pay the claim 10, illustrated by step420. After paying the claim 10, in step 430, the VEBA trust 140 mayreimburse the employer 120 for at least a portion of the claim 10.

As would be understood by a person skilled in the art, variousmodifications of this embodiment may be possible. For example, the claimmay be paid directly by the VEBA trust 140 or it might not be theemployee/retiree 110 making a request, it may be a third party such as ahospital or a creditor of the employee/retiree 110. Additionally, arequest may not even be required in some embodiments. Specifically, theemployer 120 or VEBA trust 140 may have some other arrangement in placeto pay for these benefits, for example, by paying a third party tohandle such claims.

Additionally, although the above embodiment describes a VEBA trust 140,it should be understood that any trust may be utilized within the scopeof this invention. The VEBA trust is established under Title 26 of theU.S. Code and there are several benefits of VEBA trusts that make itsuse beneficial. For example, some permissible benefits that a trust(including, for example, a VEBA) may pay for include life, health,accident, and other benefits to participants. The other benefits,according to Treasury regulations, may include vacation benefits,subsidized recreational activities (e.g., athletic leagues), child carefacilities, job readjustment allowances and income maintenance paymentsin case of economic dislocation, temporary living expense loans andgrants in times of disaster, supplemental unemployment compensation,severance benefits, education or training benefits, supplementalexecutive retirement programs (SERP), non-qualified deferredcompensation, and personal legal service benefits. Additionally, thereare tax advantages that an employer may use to their benefit by using aVEBA trust. Of course, these benefits would be apparent to a personskilled in the art. Other trusts may also be used. For example, a Rabbitrust or Grantor trust are other examples of trusts that may bebeneficial in the context of the present invention. Other trusts thatmay be beneficial will depend on the employer's specific situation.Additionally, it should be understood by a person skilled in the artthat certain trusts may be owned by employees of the employer instead ofthe employer directly.

As previously mentioned, the VEBA trust 140 may purchase life insurancecontracts with the funds that it receives. As illustrated in FIG. 1, theVEBA trust 140 pays premiums 13 to a third party insurance company 150.The third party insurance company 150 issues an insurance policy wherean employee, former employee, or retiree, or a group of such employees,former employees, or retirees (or any combination thereof) is theinsured and the VEBA trust 140 is the beneficiary of the life insurancecontract. Accordingly, when the insured person dies or makes a claim,the third party insurance company 150 pays the beneficiary proceeds 14to the VEBA trust 140.

In accordance with embodiments of the present invention, the VEBA trust140 may acquire any combination of policies on any group of persons. Ofcourse, as would be understood by a person of ordinary skill in the art,there are legal limits for insurance policies on whom and how much aninsurance policy can be for. For example, many government regulationsrequire that the beneficiary have an “insurable interest” in theperson(s) named on the policy. Accordingly, it would be difficult, butnot out of the scope of the present invention, to select arbitrarypersons to name on life insurance policies.

Additionally, there are often tax advantages to investing in lifeinsurance policies. Accordingly, as would be readily understood by aperson of ordinary skill in the art, it may, in certain embodiments, bebeneficial to invest a maximum acceptable amount of funding from theVEBA trust 140 to pay premiums 13 on life insurance policies. Although,in some embodiments, the VEBA trust 140 assets may also be invested 18in other investment vehicles 160. More about this type of investment isdiscussed below.

The insurance policies that are issued by the third party insurancecompany 150 are then reinsured 16 by the employer's captive insurancecompany 130. By reinsuring 16 the policies, the employer's captiveinsurance company 130 assumes the risk of the policies (i.e., theemployer's captive insurance company assumes liability for the paymentof at least a portion of the beneficiary proceeds 14) from the thirdparty insurance company 150 in exchange for a premium paid to theemployer's captive insurance company 130. Accordingly, the third partyinsurance company is sometimes called a fronting company since the thirdparty insurance company may only be involved in administering thepolicy. Additionally, in some embodiments, the third party insurancecompany may also be secondarily liable for the beneficiary proceeds.

In an embodiment of the present invention, the employer's captiveinsurance company 130 assumes the entire risk from the third partyinsurance company 150; in other embodiments, the employer's captiveinsurance company may only assume a portion of the risk. If the entirerisk is assumed, than the third party insurance company is a frontingcompany. The premiums 13 paid by the VEBA trust 140 may be forwarded tothe employer's captive insurance company 130, often less a fee retainedby the third party insurance company 150 for their initial and ongoingservices.

In some embodiments, the third party insurance company 150 may not benecessary and the employer's captive insurance company 130 may simplyassume both roles. Specifically, as illustrated in FIG. 2, which is aschematic drawing of another embodiment of a funding program inaccordance with an embodiment of the present invention, the reinsurancemay not be necessary if the captive insurance company 130 is able toassume both rolls. However, the third party insurance company isbeneficial to the employer, especially if the employer hasemployees/retirees 110 in several states. For example, the employer'scaptive insurance company may not be as large as a traditionalcommercial insurance provider. The limited size of the captive insurancecompany, may prevent it from being able to write life insurancecontracts in all of the necessary states. Accordingly, a wellestablished third party insurance company 150 may provide this function,generally for a small administrative fee. In general, the variousfunctions of an insurance company, including administrative functions,paying benefits, and collecting premiums, may be distributed between thethird party insurance company and the captive insurance company in anymanner that is acceptable for satisfying the employer's needs.

Additionally, as discussed above. FIG. 2 also illustrates an embodimentof a funding program where the VEBA trust 140 pays benefits directly.

FIG. 5 is a flow chart illustrating how death benefits are paid inaccordance with an embodiment of the present invention. As previouslymentioned, if the employer's captive insurance company 130, assumes anyportion of the risk, it may be responsible for paying the beneficiaryproceeds 14 discussed above. Accordingly. FIG. 5 is one embodiment ofhow the beneficiary proceeds 14 may reach the VEBA trust 140. When thethird party insurance company 150 is notified that the death benefitsneed to be paid, at step 510, the third party insurance company 150subsequently pays the beneficiary proceeds 14 to the VEBA trust 140 atstep 520. The captive insurance company 130 is notified and reimbursesthe third party insurance company 150 for at least a portion of the paidbeneficiary proceeds 14, at 530.

As would be readily understood by a person skilled in the art, othervariations of this process may also be utilized. For example, inembodiments, the employer's captive insurance company 130 may pay thebeneficiary proceeds or claims 14 directly to the VEBA trust 140. Thismay provide additional benefits to the employer depending on thespecific situation.

As discussed above, premiums may be paid by the third party insurancecompany 150 to the employer's captive insurance company 130 in exchangefor the employer's captive insurance company 130 assuming the risk.Depending on various laws that may exist related to how the employer'scaptive insurance company utilizes the funds that it receives, theemployer's captive insurance company 130 invests 17 its funding intoinvestment vehicles to generate additional funds.

In one embodiment, for example, a life insurance contract may beconfigured to maximize the cash value of the contract. The cash value ofa life insurance contract, as would be readily understood by a person orordinary skill in the art, is the current value of the assets thatsupport the benefits under the life insurance contact. Generally, andwithin legal limits and for a given level of death benefits, this valueis maximized by paying a premium that is equal to the required amountfor a fixed value policy plus some additional amount that accumulatesover time to increase a cash value. For example, if a $1 million policyhas mortality and administrative costs of $400 per year, a policyholder, in this case the VEBA trust 140, may pay $1000 per year insteadof the minimum $400. In this case, an additional $600 per year isinvested at a predetermined or variable rate of return. Over time theaccumulation of the $600 annual payments increases the cash value of thelife insurance policy. In some cases, the return on the cash value mayeventually be enough to pay the $400 minimum such that the insurancepolicy is kept in force without additional premium payments.Additionally, in certain embodiments, the policy value may also increasesuch that when the beneficiary proceeds 14 are paid, the proceeds maytotal, for example, $1.5 million.

The employer's captive insurance company 130, uses the additional funds,over its minimum premium and in some embodiments an additionaladministrative fee, and invests this funding in investment vehicles 160.

Several investment vehicles may be utilized by either the employer'scaptive insurance company 130 and or the VEBA trust 140. One suchinvestment vehicle is an investment in the employer's own securitiesincluding the employer's short term commercial paper. The short termcommercial paper provides the necessary return that a captive insurancecompany or trust may seek while maintaining the liquidity of the assets.Liquidity, as should be readily understood by a person of ordinary skillin the art, may be important since both the captive insurance companyand the VEBA trust may need to make fairly large payments without muchnotice.

As would be understood by a person skilled in the art, otherconventional investment vehicles 160 either alone or in combination withshort term commercial paper or any other investment vehicles 160 wouldalso be acceptable. Examples of some other investment vehicles mayinclude, for example, commercial stocks, bonds, commodities, realestate, interest bearing accounts, etc.

The principles and features of the present invention may also beimplemented in a computer readable medium. For example, a computer canbe programmed to establish a funding system in accordance with theprinciples described above that meets an individual employer's needs.

In one embodiment, the computer program would be programmed to includeinformation on the laws regarding the VEBA trust 140, the third partyinsurance company 150, and the employer's captive insurance company 130.The incorporated laws may include, for example, the required legalstructure of each entity, the maximum and minimum funding required foreach entity, the types of activities which may be regulated for eachentity, and the tax advantages and disadvantages of using each entity.Of course, as would be understood by a person of ordinary skill in theart, other information that may be relevant may also be included. Theprogram would accept, as inputs, several key pieces of informationregarding the employer 120. For example, this information, in oneembodiment may include, the legal structure of the employer 120, thebenefits liability of the employer 120, the assets of the employer 120,and the projected future liabilities and assets of the employer 120.Based on these inputs and the information stored within the program, theprogram may be able to determine what structure the funding systemshould embody, how much funding should be provided to the trust, whattype of trust should be utilized, whether a third party insurancecompany 150 should be utilized, which third party insurance company 150should be utilized, what type of captive insurance company 130 should beutilized, and what type or types of investment vehicles should beutilized.

Of course, the above computer implemented method is merely an embodimentof the present invention, and it should be understood that variousmodifications, additions, and deletions are contemplated depending onthe particular situation.

In additional embodiments, the computer implemented method may also beimplemented to optimize certain aspects of the present invention. Theabove program described a computer implemented method that assisted anemployer in determining the most advantageous arrangement for fundingbenefits. Once the arrangement is determined, it may be beneficial foremployers to optimize the arrangement to their specific needs. In oneembodiment, the software may be utilized for any combination ofadministration of the funding system, optimization of the fundingsystem, performance tracking of the funding system, or managing of thefunding system.

For example, the software may be configured to maximize the cash valueof the life insurance policies while allowing a user to track the assetsand liabilities of the system and determine future projections for thestate of the system. In another embodiment, the software may allow auser to optimize the amount of funds that are paid to the trust tooptimize the tax benefits of the funding system. In another embodiment,the software may be able to determine the optimum investment strategyfor the funds provided to the trust or to the captive insurance company.

FIG. 6 is a flow chart of a computer system relating to or forimplementing a funding program in accordance with an embodiment of thepresent invention. The computer system of FIG. 6 includes user inputs610, a computer 620, and a display 680. In this embodiment, the computer620 includes 5 modules; a configuration module 660, an optimizationmodule 640, a management module 630, an administrative module 650, andan accounting module 670. The computer can be any electronic devicecapable of performing the desired function. Likewise, the modulesdescribed can be discrete or integrated and can be implemented insoftware or hardware. As described above, the user inputs 610 mayinclude a number of relevant parameters including, for example,information regarding the corporate structure, the corporate assets, andthe corporate liabilities. These user inputs may be input into thecomputer 620 via a distributor 625. The distributor 625, gathers theinformation and forwards it to at least one of the modules. Often, thedistributor 625 may also convert the data into a form that is moreeasily interpreted by the modules. The modules each contain parametersand calculating means for using the user inputs 610, where necessary, toobtain the relevant outputs. Additionally, in some embodiments, themodules may be able to communicate with each other. As discussed above,and in more detail below, these parameters and calculating means can beany appropriate information. For example, with respect to the managementmodule 630, the user inputs 610, information from the configurationmodule 660, information from the optimization module 640 and theparameters specific to the management module, may be used to allow auser to determine several management parameters. Based on, for example,the configuration module 660, the management module may track assets inthe trust account, assets paid by the employer, investment return, orproceeds from the reinsurance from the captive insurance company.Additionally, based on the optimization module 640 information and theuser inputs 610, the management module 630 may be able to determine, forexample, that additional assets are necessary from the employer in sixmonths to ensure the trust is properly funded. Additionally, reports canbe generated related to paid benefits, or other parameters. The detailsof the interaction of these parameters are discussed below.

Additionally, as seen in FIG. 6, to allow a user to utilize theinformation calculated by the modules (e.g., the software program),outputs are displayed on a display 680 via a compiler 675. The compiler675 allows the computer 620 to use the output from several modules, forexample the accounting module 670 and optimization module 640, at thesame time. Since these parameters may be interconnected, it may, in someembodiments, be beneficial for a user to be able to view the informationsimultaneously. Of course, FIG. 6 is exemplary and several variations ofthe embodiment of FIG. 6 should be apparent to a person of ordinaryskill in the art.

Several variations for optimization, reporting, administration, trackingand managing will be apparent to a person of ordinary skill in the art.Generally, however, the list below illustrates several variables orassumptions that may be beneficial for the computer implemented system(or the method in general) of the present invention.

 (1) Year The number of years the software may calculate data for.  (2)Number of Lives Covered The starting number of participants. May assumedeath rates based on any acceptable means. May also account for newemployees. Policy Accounting  (3) Insurance Face Amount Face amounts areset for the policy to qualify as Life Insurance and to determine whetherthe policy is treated as a Modified Endowment Contract (MEC) or not. (4) Premium Assets paid to trust to establish and fund the lifeinsurance contract.  (5) Number of Deaths Estimated number of deaths arecomputed based on any acceptable means.  (6) Death Benefits Deathbenefits are actuarially determined by the expected deaths and theinsurance face amounts.  (7) Loads Basis points charged to the policy. (8) Surrenders The amount of cash value that is withdrawn orsurrendered. May also be a partial surrender.  (9) Investment EarningsExpected investment return rate based on any acceptable means. (10) Endof Year Cash Value Based on actuarial projections. (11) End of YearBasis Based on actuarial projections. (12) Policy Cash Flow Premiumadjusted for death benefits and surrenders. From the corporate point ofview, this is the amount of money the employer is spending on the policyor getting back from it. Captive Cash Flow (13) Direct Premium The sameas (4). (14) Reinsurance Ceded Mortality risk is assumed to bereinsured. It assumes a percentage load by the reinsurance company. (15)Net Premium Direct premium less reinsurance ceded. This is the netannual premium amount retained by the captive. (16) Total Death BenefitsDeath benefits are calculated based on the pre-determined group premium(4). (17) Reinsurance Recovery Generally equal to the benefits receivedfrom the reinsurer. (18) Net Death Benefits Total Death Benefits (16)less Reinsurance Recovery (17). Net Death Benefits may be paid from theCash Value. (19) Surrenders The same as (8). (20) Premium Tax Premiumtax is calculated based on the sliding scale. For example, Vermontcaptive insurance premium tax rates are applied to direct premiums. (21)Expenses Program administration expenses for this program. (22)Investable Assets These are the assets generating investment earnings.Beginning of year invested assets (24) plus annual net premium adjustedfor death benefits (18), surrenders (19), expenses (21) and DAC Tax(30). (23) Investment Earnings Investment earnings based on anyacceptable means. (24) Cash Tax Expense Captive's annual income tax (46)adjusted for DAC Tax. (25) Beginning of Year Prior year's End of YearInvested Assets (25), $0 in year 1. Invested Assets (26) End of YearInvested Beginning of Year Invested Assets (25) plus Investment AssetsEarnings (23) and Net Premium (15), less Net Death Benefits (18),Surrenders (19), Premium Tax (20), Expenses (21) and Cash Tax Expense(24). Deferred Acquisition Cost (DAC) (27) Current Year DAC The lesserof a given percentage of premiums and the captive expenses (premium taxand administration expenses). (28) Amortization DAC amortization. (29)Unamortized DAC Prior year's Unamortized DAC (prior DAC year's 29) plusCurrent Year DAC (27) minus Amortization (28). (30) Deferred Tax AssetAccumulated DAC payments that will be recovered through futureamortization. A percentage tax is applied to the Unamortized DAC (29).The Captive Income Statement section below represents the impact of theTOLI transaction on the Captive's Income Statement (31) Direct PremiumsThe same as (4). (32) Reinsurance Ceded The same as (14). (33) NetPremiums The same as (15). (34) Investment Income The same as (23). (35)Gross Income Net Premiums (33) plus Investment Income (34). (36) DeathBenefits The same as (6). Incurred (37) Reinsurance The same as (17).Recoveries (38) Net Death Benefits The same as (18). (39) Surrenders Thesame as (19). (40) Increase in Policy Equal to the annual change in Endof Year Cash Value Reserves (annual change in 10). (41) Total BenefitExpense The total benefit expense paid by the captive; Sum of Net DeathBenefits Expense (38), Surrenders (39), Increase in Policy Reserves(40). (42) Premium Tax The same as (20). (43) Other Expense The same as(21). (44) Total Expense Sum of Total Benefit Expense (41), Premium Tax(42), Other Expense (43). (45) Pretax Income Gross Income (35) minusTotal Expense (44). (46) Income Tax A percentage tax that is applied toPre-tax income (45). (47) Net Income Pretax Income (45) minus Income Tax(46). The Captive Balance Statement section below represents the impactof the TOLI transaction on the Captive's Balance Sheet. (48) InvestmentsEqual to the End of Year Invested Assets (26). (49) Unamortized DACEqual to the Deferred Tax Asset (30). (50) Total Assets Investments (48)plus Unamortized DAC (49). (51) Liabilities (Policy Equal to the End ofYear Cash Value (10). Reserves) (52) Capital Additional funds needed forcapital. If captive is already capitalized, no additional funds will beneeded for capital. (53) Retained Earnings Net Income (47) plus prioryear's Retained Earnings (53) (54) Total Shareholder Capital (52) plusRetained Earnings (53). Equity (55) Total Liabilities and Liabilities(Policy Reserves) (51) plus Total Shareholder Equity Equity (54).Financing/Alternative use of Assets The section below computes theopportunity cost of captive funding. The cash that would have been usedelsewhere, i.e., the employer's other investments in the initial years,will be consolidated under the Life Insurance program. (56) Policy CashFlow The same as (12). (57) Capitalization of Captive The same as (52).(58) P&C Premium Effected Amount of P&C premium that is affected by theemployee benefits funding. For example, IRS Revenue Ruling 2002- 89requires that 50% of the captive's business stem from unrelated parties(e.g. employee benefits) for the remaining P&C premiums to bedeductible. (59) Accumulated P&C P&C reserves that can be used todetermine deductible Deduction amount. (60) Current P&C Deduction Annualchange in the accumulated P&C Deduction (annual change in 59). (61) P&CDeduction Value Value of the accelerated tax deduction. A percentage taxrate applied to the Current P&C Deduction (60). (62) Net Cash Flow Theamount that employer needs to finance. Sum of Policy Difference CashFlow (56), Capitalization (57) and P&C Deduction Value (61). (63)Beginning of the Year What a company owned policy (COLI) would be worthif the Exchanged COLI Plan Value continued to hold it. Prior year'sBeginning of Year Value of Exchanged COLI policy (prior year's 63) plusExpected Earnings (65). In year 1, COLI Exchanged (64) is also includedin the Beginning of Year Value Exchanged COLI. (64) COLI ExchangedExpected value of the COP assets that will be transferred to the Policyprogram when the benefits are funded through the captive. (65) ExpectedEarnings Beginning of Year Value Exchanged COLI (63) earnings adjustedfor the COLI policy load (80 bp). (66) Beginning of Year The assets thathave not yet been sold to finance the TOLI. Assets Prior year'sBeginning of Year Assets (66) plus prior year's Tax Effect minus prioryear's assets sold. For year 1, this is the amount of current assets.(67) Asset Earnings The amount of assets the program would have had ifthe assets had not been transferred to the TOLI program. Earnings at anassumed rate on the assets available for investments, i.e., Beginning ofYear Assets (66) adjusted for Assets Sold (70). (68) Tax EffectPercentage tax rate applied to Asset Earnings (67). (69) Beginning ofYear Prior year's Asset Sold (prior year's 70) plus prior year's AssetsSold Expected Earnings (prior year's 71) minus prior year's Tax Effect(prior year's 72). (70) Assets Sold Sell assets when the Beginning ofYear Value Assets Sold (69) is positive to cover the Net Cash FlowDifference (62) if COLI Exchanged (64) alone is unable to pay out theNet Cash Flow Difference (62). (71) Expected Earnings Expected earningsat a determined percentage on net assets investable into mutual funds ina given year; i.e. percentage applied to Beginning of Year Value SERPMutual Funds Sold (69) plus Mutual Funds Sold (70). (72) Tax EffectPercentage tax on Expected Earnings (71). Loan/Repayment accounting.This section illustrates the impact of the TOLI transaction on the loansof the employer. (73) Beginning of Year When COLI Exchanged (64) andAssets Sold (70) are not Loan Balance enough to meet Net Cash FlowDifference (62), loans are needed to cover the Net Cash Flow Difference(62). This amount is equal to the prior year's End of Year Loan Balance(prior year's 77). (74) (Borrowing)/Repayment Net Cash Flow Difference(62) less Repayment COLI Exchanged (64), Mutual Funds Sold (70), otherDebt Incurred, and Other Assets Sold. (75) Value of Funds Interest onBeginning of Year Loan Funds Balance (73) and (Borrowing)/Repayment(74). (76) Tax Effect Tax impact of loan interest. Value of Funds (75)times tax rate. (77) End of Year Loan Beginning of Year Loan Balance(73) adjusted for Balance additional loans, interest and tax impact ofinterest; Sum of Beginning of Year Loan Balance (73),(Borrowing)/Repayment (74) and Value of Funds (75), less Tax Effect(76). The Unconsolidated Earnings Impact (Employer) section belowrepresents the impact of the TOLI transaction on Employer's IncomeStatement. (78) Investment Earnings Equal to Expected Earnings (71) ofAssets, which is the earnings if the assets would not have been sold.(79) Other Income Policy earnings offset by reserve earnings. Note:Other Income may not be subject to tax. Sum of Increase in PolicyReserves (40), Policy Cash Flow (56) and Expected Earnings (65) on theCOP Exchanged. (80) Total Revenue Investment Earnings (78) plus OtherIncome (79). (81) Interest Expense/Credit Interest expense/credit oncorporate debt. Equal to −Value of Funds (−75). (82) Pretax Income TotalRevenue (80) minus Interest Expense (81). (83) Tax Tax on ExpectedEarnings on (72) plus tax impact of the loan (76). (84) After-tax IncomePretax income (82) minus Tax (83). Generating book value whilegenerating tax deductions. The Unconsolidated Balance Sheet Impact(Employer) section below represents the impact of the TOLI transactionon Employer's Balance Sheet. (85) Cash and Investments Reduction ininvestments due to the sale of assets. Equal to the following year'sBeginning of Year Value SERP assets Sold (the following year's 69). (86)Other Assets Increase in the Life Insurance Assets. Liabilities (PolicyReserve) (51) plus the following year's Beginning of Year ValueExchanged COLI (the following year's 63). (87) Deferred Tax Asset Ifemployer carries a Deferred Tax Asset which they would recognize whenclaims are paid in the future. That deduction may now be acceleratedunder the captive program and will be converted into cash. Accumulationof P&C Deduction Value (accumulation of 61). (88) Investments In CaptiveAccumulation of the Capitalization of the Captive (accumulation of 57).If the captive is already capitalized, there is no initial capital andsubsequent accumulation of capital. (89) Total Assets Sum of Cash andInvestments (85), Other Assets (86), Deferred Tax Asset (87) andInvestments in Captive (88). (90) Liabilities/Loans Equal to the End ofYear Loan Balance (77). (91) Shareholder Equity Accumulation ofAfter-tax Income (accumulation of 84). (92) Total Liabilities andLiabilities/Loans (90) plus Shareholder Equity (91). Equity ConsolidatedImpact (93) Net Income Consolidated Net Income of the captive andemployer. Captive's Net Income (47) plus Employer's After-tax Income(84). (94) Shareholder Equity Consolidated shareholder equity of thecaptive and Employer. Captive's Shareholder Equity (54) plus Employer'sShareholder Equity (91).

In embodiments, any combination of these variables, and others that willbe apparent to a person skilled in the art, can be used to establish,optimize, report, administer, track, and manage the funding system ofthe present invention. Additionally, some of the above variables may beinput by a user, others may be internally determined based on severalfactors. In one embodiment, the effective tax rates may be determinedaccording to current state and federal regulations. In otherembodiments, a user may be able to input a percentage for the same taxrates. Additionally, as would be understood by a person skilled in theart, some of these variables may be determined by complex statisticalmodels. For example, the death rate may be a complex statisticaldistribution or a simple rate. For some employers, it may be sufficientto indicate that, for example, a death rate of 2 people per year.However, in other embodiments, the employer may desire a particulardistribution of the deaths. Several models may be used, in thisembodiment, based on the employer's needs.

The embodiments described herein are intended to be illustrative of thisinvention. As will be recognized by those of ordinary skill in the art,various modifications and changes can be made to these embodiments andsuch variations and modifications would remain within the spirit andscope of the invention defined in the appended claims and theirequivalents. Additional advantages and modifications will readily occurto those of ordinary skill in the art. Therefore, the invention in itsbroader aspects is not limited to the specific details andrepresentative embodiments shown and described herein.

1. A non-transitory computer readable medium storing computer readableinstructions thereon which when executed, perform a method comprising:evaluating an alternative benefits funding arrangement in which fundsare contributed by an employer to a Voluntary Employee BeneficiaryAssociation (VEBA) trust and at least a portion of the funding is usedto purchase at least one life insurance contract from a captiveinsurance company or a non-captive insurance company and then reinsuringat least a portion of the life insurance contract if purchased from saidnon-captive insurance company by the captive insurance company by:calculating what portion of said funding to use to purchase said atleast one life insurance contract; determining, based at least onbenefits liability of said employer and assets of said employer, whetherto purchase said at least one life insurance contract from a non-captiveinsurance company or a captive insurance company; and determining whatportion of said at least one life insurance contract purchased from saidnon-captive insurance company should be reinsured by said captiveinsurance company; wherein said VEBA trust is the beneficiary of said atleast one life insurance contract; and wherein said captive insurancecompany is an insurance company that insures a risk of said employer whois not solely in the business of insurance.
 2. The non-transitorycomputer readable medium of claim 1, wherein the VEBA trust is at leastpartially owned by said employer.
 3. The non-transitory computerreadable medium of claim 1, wherein the VEBA trust is at least partiallycontrolled by said employer.
 4. The non-transitory computer readablemedium of claim 1, wherein said evaluating further comprises determiningan amount of funding to provide to said VEBA trust.
 5. Thenon-transitory computer readable medium of claim 1, wherein saidevaluation indicates that said VEBA trust purchase said at least onelife insurance contract from said non-captive life insurance company. 6.The non-transitory computer readable medium of claim 1, wherein saidevaluation indicates what assets at least one of said VEBA trust andsaid captive insurance company invests in to generate additional assets.7. The non-transitory computer readable medium of claim 1, wherein saidevaluation indicates what amount said captive insurance company investsin securities of said employer.
 8. The non-transitory computer readablemedium of claim 7, wherein said securities is short term commercialpaper of said benefits provider.
 9. The non-transitory computer readablemedium of claim 1, wherein said evaluation indicates which individualsreceiving benefits from said benefits provider should be an insured onsaid at least one life insurance contract.
 10. The non-transitorycomputer readable medium of claim 1, wherein said at least one lifeinsurance contract is configured to maximize a cash value of said atleast one life insurance contract for a predetermined period of time, orto optimize at least one of a premium, a death benefit or anothervariable in accordance with said benefits provider's needs.